Money Management

A “fair” agreement isn’t always strictly equal. 

Housing costs keep getting higher. In theory, having a housemate to share expenses is the best way to combat rising prices. But, as with most things, there’s theory — and then there’s reality.

What seems like a simple solution to manage your personal finances can be a lot more complex when it comes to putting it into practice. Even something so fundamental as how to split the rent fairly can cause a lot of complications.

Perhaps the most important thing to keep in mind is that everyone has their own idea of what’s “fair.” The goal is to find an arrangement that everyone can (literally) live with. There are a few ways you could interpret a fair financial split depending on your roles and relationship.

Option 1: Even split

By the most basic definition of a fair split, you’d each pay the same percentage of the rent (and associated utility bills). So, if the rent is $1,500 a month, two people would pay $750 each or three people would pay $500 each.

This method has the benefit of simplicity, but it works best when all of the rooms are roughly the same size and have the same amenities. You can’t overlook the difference between equality and equity.

What does that mean? Say the house you’re renting with two friends has three bedrooms: one master bedroom with an ensuite bathroom, and two regular-sized rooms. In an equal split, everyone pays the same amount — but is that really fair to the people paying the same amount for less space? Probably not.

Option 2: Price per square foot

One way to split rent in a house or apartment with unequal-sized rooms is to split the rent the same way the square footage of living space is divided. This way everyone is paying for their own space in a more literal sense.

Since everyone will use the public spaces, you can ignore them. This makes the math simpler: Add up the total square footage of the bedrooms (and any other private spaces). Then divide each housemate’s private square footage by the total amount.

For instance, imagine two people will rent a two-bedroom apartment with a shared bathroom. One room is 350 square feet and the other is 250 square feet, for a total of 600 square feet of private space. Based on room sizes, they would split the rent 58% and 42%, respectively.

Option 3: Income adjustments

In some cases, the most fair way to split rent is based on your means, not flat amounts. Basically, you each pay the same percentage of your income toward rent. (This option is more common for romantic couples and committed partners than your typical housemate situation, but it could apply to anyone.)

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As an example, say the rent is $1,500 a month. Person A makes $40,000 a year and Person B makes $80,000 a year. Person B makes twice as much as Person A, so they would pay two-thirds of the rent — $1,000 — while Person A pays one-third, or $500. Person B may pay a larger dollar amount, but both people are paying 15% of their income.

Option 4: Balanced by responsibility

When considering how to split rent, you also need to think about how you’re going to split responsibilities — and the two areas may overlap for some folks. It comes down to how each of you values your time (and how much you value not having to do certain tasks).

Do you or your housemate love to cook? Is it worth a little extra money each month to not have to cook? If one housemate is taking on extra responsibilities, it may make sense to have the other person (or people) pay a little more of the rent to compensate for their time and effort.

These situations can get sticky quickly, so be sure everyone is clear on the expectations from the beginning. It may even be useful to have a written document that outlines duties and expenses — as well as shows everyone’s agreement to abide by them.

Option 5: Mix and match

Everyone’s living situation will be unique to the people in it. What works for one set of housemates may not work for the next. The nature of your relationship, your finances, the house — all of these and more can impact how you decide to split your rent and other expenses.

Be open and honest with your potential housemates about what you feel is fair and equitable. If you can’t come to an agreement about this, chances are good you’re not going to be a good fit as housemates anyway.

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You don’t want to rush into buying a home or make the decision to purchase for the wrong reasons. As a result, it’s important to think carefully about certain key issues before moving forward with getting a mortgage and signing an agreement to buy.One finance expert, Ramit Sethi, believes that many would-be homeowners are actually asking the wrong questions before they make a decision on homeownership. On Twitter recently, he suggested some alternative issues to focus on instead, which aren’t on many people’s radar.Here’s the questions Sethi recommends asking before purchasing a property of your own.Have you thought about these issues before buying a home?Sethi says that many people focus on superficial issues when they think about homeownership. Specifically, he points out that people ask questions about issues like the types of countertops the home has or how the bathroom can be remodeled to be more to their liking.Rather than focusing on these cosmetic matters, Sethi instead suggests asking yourself two key questions before putting in an offer.The first of those questions relates to a common prohibition found in many parts of the country. He recommends asking yourself, “Why am I legally prohibited from building an ADU or eliminating the front yard on my own property?”And the second question he suggests focusing on is whether you have run the numbers to compare the costs of buying and renting.Is Sethi right?Sethi is 100% right to point out that you shouldn’t focus just on what a house looks like. Obviously, you want to like the aesthetics of the place that you live. But a home is a major investment. For most people, it’s their most valuable asset — and the mortgage most people take out to purchase their property will likely be the largest financial obligation they assume during their lifetimes.You do want to be sure that buying actually does make financial sense. And, comparing the costs of renting versus buying is a good way to do that. If you can rent a comparable property for much less than the costs of purchasing one and you can and will invest the difference in a brokerage account, you might end up with a higher net worth over time.As to the question of why you can’t eliminate the front yard or add an ADU (which is an accessory dwelling unit that you could potentially rent out or allow family members to live in), these are bigger issues that have to do with the economics of housing in the United States.Unless you actually want to eliminate your front yard or build an accessory dwelling unit, these issues may not impact you directly — but they can be worth thinking about to get a better understanding of why housing costs have risen so sharply in America and what property rights limitations really mean for the public.Ultimately, before buying a home, it’s important to consider the big picture, including restrictions that will be imposed on you by zoning rules or the HOA as well as the costs of owning. You may still decide that buying is what you want — but don’t go into the decision just focused on what your future home will look like, or you could regret it. 

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Don’t leave pets unprotected when buying life insurance coverage. 

Pet owners know that caring for an animal can be very expensive. This is why those who own a pet may want to consider buying a life insurance policy even if they do not have other dependents counting on their income.

While this life insurance policy doesn’t necessarily have to be huge, it can ensure money is available to pay for a pet’s needs after an owner’s untimely death.

Why would a pet owner need life insurance?

Pet owners should consider buying life insurance for the same reason anyone else buys coverage. If they die, they don’t want to leave their pet’s without the funds needed to provide for them.

A life insurance death benefit can pay for an animal for the rest of its life so the pet does not become a financial burden on the new caregiver. The pet owner can buy a life insurance policy that provides enough money to pay for food, toys, services like doggy daycare, and any veterinary care that may be required.

By making sure there are no financial obstacles for a new caregiver, the pet owner can help ensure their beloved animal companion receives the same standard of care they would have gotten had the original owner lived. The pet owner can also make sure their animal never has to be surrendered to a shelter for financial reasons or has to go without veterinary care due to a lack of available funds.

Can a pet be a beneficiary for a life insurance policy?

Someone buying life insurance to make sure their pet is provided for is going to need to choose the right process to name a beneficiary.

A pet cannot be a direct beneficiary on a life insurance policy because the animal would lack things like a bank account, a Social Security number, and the ability to make a claim. However, the pet owner could create a trust to provide for the care of the animal and the trust could be named as the beneficiary of the life insurance proceeds. The pet owner could also name the pet’s chosen guardian as the beneficiary, providing instructions for how the money is to be used.

A trust can be more complex to set up and there could be tax consequences when the life insurance death benefit is paid to a trust rather than to an individual. However, a trust can provide a pet owner with more control over when and how the money is used to provide for a pet after death.

Those who are considering the best way to ensure that life insurance is able to provide for a surviving pet should consider talking with an estate planning lawyer. They can help determine the best way to ensure the money is used for the animal’s needs.

The important thing, though, is to have these conversations — and look into purchasing a life insurance policy — well before a death occurs. This way, a life insurance policy can be obtained and the right beneficiary named in plenty of time to provide the protection that animal companions deserve.

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There’s such a thing as being too hands-on at home. 

Owning a home means you have an entire building (or more, if you have a shed, a garage, or other outbuildings) to tinker with and really make your own. This is a really exciting thought for a lot of people, and you might be itching to dig in and start making some much-needed repairs, and maybe saving some money by trying to DIY.

But depending on what you want or need to do with your home, it might not be a good idea to undertake it yourself. Messing up a home repair or project can result in wasted time, wasted money, and even health risks. Hire a professional for these home fixes.

1. Removing dangerous materials

If you own a home that is old or has been poorly maintained, you might be dealing with lead paint, mold, or asbestos (which, fun fact, can be present in popcorn ceilings). These materials should be dealt with by a professional who has been trained to mitigate risks to both themselves and the people who live in the home. Plus, removing dangerous substances often requires specialized equipment you may not have access to (or would be too expensive to justify you purchasing just to work on your own home). And doing this type of work might even require a license.

2. Foundation repairs

Your home’s foundation is its very bones, and if you suspect a problem with it, you definitely want to call a professional. A foundation repair company will be able to identify cracks in your foundation and know what they mean. They’ll also know how to fix your problem in a lasting way without causing further damage, and can make recommendations for how to prevent future issues.

3. Home additions

Not all occasions to hire someone are negative. Maybe you’ve just decided to build an addition onto your home to house your office for your new career as a freelancer. Congratulations! This is a HUGE job, you’re likely going to need multiple people’s help. You’ll need a design architect, a general contractor, and the subcontractors who will do a lot of the work. Plus, permits will be required, and a professional contractor will know how to obtain them. If you are truly confident in your building skills, you may be able to play some of these roles, but it’s all but assured you’ll need some help.

4. Major electrical work

Let’s get back to safety concerns. Someone with decent handyperson skills may be able to install a new front porch light or switch out a ceiling fan. But if you’re in need of a complete rewiring or a new fuse box, call an electrician. Electricity can kill you and is not to be trifled with.

5. Roof replacement

This is truly one of the most costly and labor-intensive home projects, and while doing it yourself could save you a large chunk of money, you’ll be at the mercy of the weather and securing all the proper materials, and again, if you’re not confident with ladders and heights, you could injure yourself (or spend a very miserable weekend on your own roof).

6. Addressing severe pest infestations

Back to dangerous substances! If you have a major pest problem, like families of mice or squirrels in your walls, or more roaches than you thought possible, you need to call in an exterminator. While I’d encourage you to address a minor springtime ant problem yourself, if heavy chemicals or a lot of traps will be involved, let someone else handle the dirty work.

How do you afford home repairs?

I understand the impulse to save money as a homeowner — after all, being one is expensive! So you may look at the above list and feel disappointed in how much this will all cost you.

Here are some options to pay for the above projects:

In the case of emergency repairs, it pays to have a dedicated home emergency maintenance fund (such as money in a designated “bucket” in a high-yield savings account).You can plan for and save extra money in another “bucket” for big non-emergency projects, like your new office addition.You can fund a home repair with a personal loan; the money can be used for anything you want, and if you have good credit, you may get a decent interest rate.You can turn to a home equity loan, which will give you a set amount of money and a fixed period to pay it back with interest.Finally, you can consider a home equity line of credit (HELOC), which also taps your home equity in the form of money you can draw on at will, and must make payments on. The interest rate on these is variable, so be careful.

Yes, it can be expensive to hire a professional for home repairs, but if you try to DIY these, you could really mess something up and have to pay to have it fixed, or even end up hurting yourself. So play it safe and err on the side of caution for best results.

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Space heaters are very user friendly. 

Winter is a difficult time of year for me — but I’ve chosen to live in a part of the country that gets extremely harsh snowy winters. It’s really the only thing I don’t like about living here, but after several years, I’ve adapted and can make it through winter while staying warm and not draining my bank account to pay for my heating costs. What’s my secret? I own a few space heaters and I use them strategically all winter long.

Electric space heaters can be your winter best friend if you’re trying to save money. They are inexpensive to purchase — I bought mine for less than $100 each, and you can purchase smaller units for even less. Small ones intended for use in single rooms don’t draw much power, either. They sometimes have neat features; mine came with remote controls, timers, and an oscillation function. Space heaters make it incredibly easy to just heat one room at a time to comfort, which can save you money during the cold winter months. Here’s how.

Heating your entire home can be expensive

As WGRZ reported in Sept. 2022, winter heating costs are predicted to be up by 50% for 2022–2023 due to a few different factors. Inflation has of course served to make just about everything more expensive, and the Russia-Ukraine conflict has an impact too. Russia is a major natural gas producer for Europe, but as they’ve been cut off from selling it to the rest of Europe, the United States is exporting more of its supply overseas. So if you have natural gas heating (and you likely do, if you live in a cold place like me), keeping your heat set lower will save you money.

How do you easily achieve and maintain lower overall temperatures at home? One great way is to install a programmable thermostat so you get to set your home temperature and rely on technology to adjust it as needed. Plus, you can set different temperatures for different times of day; it hardly makes sense to heat your home to a comfortable temperature for hanging out if you’re at work all day, so you might choose to turn the heat down on weekdays while you’re out.

But if you’re a renter like I am, you may not have the option to install a new thermostat, and your landlord may not want to spring for it either. But a space heater can help you more closely regulate the temperature in the room you’re actually in. The two rooms I spend the bulk of my time in are my home office (I work from home) and my bedroom. I keep my central heating turned down and rely on a space heater in each of these rooms to keep them comfortable.

Space heater safety tips

It would be remiss of me not to quickly give you a few tips to run a space heater more safely. If you’re leaving the room, definitely turn it off, and consider unplugging it, too. Supervise children and curious pets. Make sure your heater is set up at least a few feet away from flammable objects, and avoid plugging it into an extension cord. Don’t run a space heater overnight (it’s worth buying one with a built-in timer). Finally, look for space heaters that come with safety features. The two I have will actually shut themselves off if they’re jostled or knocked over.

Other ways to save

There are other moves you can make to save on heating costs — I rely on these as well as my space heaters. Note that you might qualify for government assistance with your heating bills, too.

Turn the heat down

I keep my central heating set at 64 degrees, but I know people who keep theirs even lower than this. You do want to make sure your pipes don’t freeze, however; insurance agency Jerry recommends consumers keep their homes no cooler than 55 degrees in winter.

Seal cracks and openings where heat can escape

If you’ve got a big gap under your door and can feel cold air coming in, you know warm air is also getting out. Now is the time to break out the weather stripping and draft shields. Many of the windows in my apartment are in bad shape, and as such, I hang clear plastic sheeting over them in the fall and leave it there until spring. In the immortal words of my father, “We’re not paying to heat the outside!”

Sign up for budget billing

Once I had lived in my current rental for a year, I was eligible to get on a budget billing plan through my utility company. The company averaged my year of costs, and now I pay the same amount every month. Because I too steps to keep my costs down last winter, the amount I pay per month is pretty reasonable. If budget billing is available to you, I recommend it. It’s wonderful to be able to create a monthly budget based on predictable costs.

If you decide to pick up a space heater and employ the other tips mentioned above, you can save money on your heating costs this winter and stay warmer at the same time. What’s not to like about that?

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Avoid these credit card moves. 

Credit cards are a commonly used personal finance tool. But it takes practice to learn how to use them well. Some habits could cost you money, and if you’re not careful, some habits can also harm your credit score and put you in a difficult financial situation. Keep reading to learn which credit card habits to avoid so you can set yourself up for success.

1. Paying only the minimum amount due

When using a credit card, the best practice is to pay your entire credit card bill in full. However, your card issuer will list a minimum amount due on your bill. If you only pay this amount, you’ll be charged interest on the unpaid portion of your balance. You’ll also put yourself at risk for carrying credit card debt. You can avoid these extra costs by paying your entire balance off every month.

2. Making late payments

Paying your credit card bill on time each month is a good move to make. Your card issuer will charge you fees when you make late payments. These extra costs can add up. Additionally, missed or late payments can harm your credit report. Once you’re 30 days or more past due on a bill payment, it can be reported to the credit bureaus.

Paying your bills on time can help you avoid extra fees. Plus, it’s a good move for your credit score. If you struggle to pay your bills on time, you may want to consider setting up autopay through your card issuer. This way, you won’t forget and fall behind on payments.

3. Not monitoring your credit card usage

Using your credit card to pay for purchases you can’t afford is a recipe for disaster. Instead, you should carefully monitor your spending and only buy what you can pay off. When you don’t monitor your credit card usage, it can put you in a tough financial position. You’ll be charged credit card interest charges on unpaid debt and your balance may continue to climb. If you struggle at monitoring your spending, budgeting apps can help you stay on track.

4. Paying an annual fee for a card you don’t use often

While no annual fee credit cards exist, some cards come with a yearly fee. For some consumers, the fees are worth it because they use their cards often and take advantage of the benefits offered. But if you’re paying an annual fee for a card that you hardly use or for a card with benefits that you’re not utilizing, you’re wasting money. If this is the case, consider downgrading your card to a card with no annual fee.

5. Taking out cash advances

If you ever need cash, it’s best to use your debit card to take money out of your bank account. When you use a credit card to take out cash, it’s considered a cash advance, and your card issuer will charge credit card cash advance fees. Typically these fees range from 3% to 5%.

Additionally, you’ll also be charged interest on the cash advance, and interest is charged right away. All of these fees add up and impact your finances. Don’t be tempted to use a credit card to take out cash if you don’t like to waste money on extra fees.

6. Using the wrong rewards credit card

Reward credit cards offer an easy way to earn rewards, like cash back on spending. Using the right card can maximize your reward potential. For example, if you have a dining credit card that earns 4% cash back on restaurant purchases, if you use a 2% cash back to pay for dinner out instead, you’re missing out on credit card rewards. Paying with the dining card will double your rewards earned.

Using the wrong rewards card costs you money because it will take longer to reach your redemption goals. If you use rewards credit cards, ensure you understand which cards to use for various purchases, so you don’t miss out on rewards.

All of these credit card habits can get expensive. You can keep more money in your checking account by making careful credit card moves. The more comfortable you get using credit cards regularly, the easier it will be to make choices that benefit your wallet and your credit.

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